IEEJ: September 2003

382nd Regular Researchers’ Meeting
Abstract of the Report

June 24, 2003

Discussion Points in Japan’s Renewable Energy Promotion Policy−Effect, Impact and Issues of the Japanese RPS −Shinichi Nakakuki
Hiroki Kudo

ResearcherGroup Manager

Environment Group<Purpose of the Report>
A wide variety of measures have been taken in relation to renewable energies (number of newenergies) according to their energy-security-based necessity as the alternative energy of oil.
Moreover, in recent years, an increasing amount of attention has been focused on the role played bythese energy sources as a global-warming policy, and policies are coming under review that are
aimed at boosting the amounts of such energies introduced.
Under these circumstances, the Special Measures Law Concerning the Use of New Energy byElectric Utilities (known as Japanese RPS)” came into effect in April 2003, thus reinforcing
renewable energy promotion measures. However, some points remain to be clarified in relation tosystem implementation. In addition, a number of issues require review in relation to theirconsistency with policies and measures to be reviewed in the future, including the electric-power
market system and global-warming policy. According to the new system, necessary measures will betaken as appropriate three years after its introduction, in accordance with system trends. Therefore,
issues and points of discussion anticipatable at present should be continuously extracted andreviewed.
This report provides analyses of the outline and implementation of the Japanese RPS and its
consistency with various policies and measures, and raises questions concerning points of discussion
to be reviewed in the future.
* RPS: Renewable Portfolio Standard – Legislation that sets a minimum percentage of electricity generated byrenewable energies in terms of electricity sold, and presents target achievement options such as figure trade among
electric utilities* Renewable Energies: energy sources that do not use exhaustible fuels. Sources of renewable energy include wind,photovoltaic, biomass, geothermal, and hydropower constituting new energies. As for hydropower, the Japanese RPS
is applicable only to small-scale hydropower (1,000 kW max.).

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IEEJ: September 2003

<Main Conclusions>
1. As a result of the national government’s new-energy policy and private businesses’ voluntary
efforts, electricity derived from renewable energies in particular accounts for 1.8% (‘2000) of thetotal power generation in Japan – a level that can be favorably compared with those of European
nations and the U.S. (2% on average among IEA participants). Further, additional policies andmeasures aimed at accomplishing policy targets such as global-warming have recently come underreview.
2. As a result of the minimum percentage of electricity to be generated by renewable energies
established by the Japanese RPS that came into force on April 1, 2003, amounts of renewableenergies equivalent to that percentage are expected to be introduced. On the other hand, utilities
selling electricity will have to bear extra costs resulting, for example, from the introduction of
additional power-generating facilities and the purchase of other utilities’ figures to meet their targets,
eventually requiring them to lighten their economic burdens as much as possible.
3. The RPS System provides achievement options designed to achieve renewable-energy
introduction targets and minimize overall social costs. While the system’s performance will become
obvious in the future, the law prescribes that the system’s details should be reviewed as necessary.
Important considerations and requirements should be clarified in order to review future trends interms of “system implementation” and “consistency with other policy measures.”
4. The following are considerations to be reviewed in terms of system implementation:(1) Establish implementation rules that will lead to sufficient market liquidity in order to achievetargets with economic efficiency.
(2) Ensure the proper functioning of banking and penalty rules as target achievement incentives for
system participants.
(3) Establish rules for interconnection measures in response to the increased quantities ofrenewable energies introduced.
(4) Review the necessity of auto-generators’ participation in the system, and the implementation
methods to be used if they participate.
5. The following are the requirements to be met in terms of consistency with other policy measures:(1) In the process of expansion of the scope of liberalization in the electric-power market,
introduction targets that neither inhibit competition nor constitute electricity tariffs or accessbarriers for new entrants must be set, and implementation rules established.
(2) Japan should introduce means of achieving the objectives of the Kyoto Protocol with better
economic efficiency in the review of global-warming policy measures scheduled for 2005 orlater. In the review, Japan should be sufficiently flexible to maintain consistency between
established proper targets for introduction of the RPS and anticipated global-warming policy
measures (e.g., an emission trade system, environment tax).
(3) The RPS System is designed to turn the social costs borne by the national government’s
financial support into internal costs through target achievement and market trade. Therefore, ofthe existing new-energy support measures, socially significant ones for which the RPS Systemcannot provide solutions should be selected and policy-oriented support consolidated.
(4) The RPS System is targeted only for the supply side, and lacks policy-oriented appeal to thedemand side. On the other hand, voluntary approaches targeted for the demand side by private
businesses are under study in various ways, and are useful in determining energy andglobal-warming measures. Therefore, policies should be reviewed that can coexist with thesedemand-side-targeted efforts without adversely affecting them.
6. It will be important in the future to carefully and continuously examine the efficient functioning of
the system based on the aforementioned requirements, and to flexibly change introduction targets
and implementation rules as necessary.

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IEEJ: September 2003

<Description>
1. Status quo of renewable-energy introduction in Europe, the U.S., and Japan
Japan is ranked third behind the U.S. and France in amounts of renewable energies introduced,
according to the 2000 statistics of the IEA (International Energy Agency), but the percentage of suchenergies in primary energy supply is slightly lower than in other nations. As far as power generationis concerned, however, Japan tops all other developed nations with the exception of the U.S., and isroughly average among developed countries in terms of the percentage of renewable energies used in
power generation. (Fig.1)
The breakdown of Japan’s power generation by renewable energies highlights biomass andmunicipalities’ waste power generation. This is due not only to the national government’s support
measures through NEDO and NEF, but also to power purchases by electric utilities throughvoluntary excess-power purchase menus. That is, the fourfold increase in power generation in theeight years since the 1992 introduction of the system contributed to this outcome. (Fig.2)
2. Considerations in expanding new-energy introduction
Various efforts have been made worldwide to expand the introduction of new energies (often
classified in Europe and the U.S. as “renewable energies,” which include hydropower andgeothermal in addition to photovoltaic, wind, and biomass). (Table.1)
In particular, the “fixed-price purchase system” as used in Germany, Denmark, Spain, and othernations proved successful to a certain degree in its early stages. However, purchase at fixed prices isgradually shifting toward market-principle-oriented systems, typically the RPS System, as purchaseat fixed prices gave rise to problems such as price rigidity and rather slow cost reductions driven bymass production, and due to increases in the financial burden on national governments.
In Japan, the report of the New Energy Division of the Advisory Committee for Natural Resources
and Energy released in June 2001 called for a further expansion in the introduction of renewableenergy in a bid to address global warming, and it was decided to introduce the RPS System as ameans of achieving this goal, as the system holds the promise of improving economic efficiency
through the use of the market principle, while taking renewable energy promotion targets as energy
security.
3. Effect of introduction of the RPS System and its impact on electric utilities
The Japanese RPS (Fig.3), which came into effect in April, 2003, set utilities’ obligatory supply
amounts on the precondition that the 2010 introduction target of 12.2 billion kWh as formulated by
the Advisory Committee for Natural Resources and Energy--the sum of the new-energy electricity
amount (11.5 billion kWh) and power generation by medium-sized and small hydropower generation
facilities and other power sources (0.7 billion kWh)--will be achieved, and it is expected that thecorresponding amounts of renewable energies will be introduced in that year. Moreover, temporary
measures are currently being taken in accordance with utility-by-utility new-energy utilization
figures, to ensure fairness in the bearing of costs among utilities at early stages of the system. Further,economically efficient target achievement options are also available, including a “takeover” among
utilities and the addition of generation figures for new-energy generators under no obligation to

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IEEJ: September 2003

achieve the target.
In any case, electric utilities under obligation must bear extra costs. Therefore, means for reducing
the cost of achieving the target should be reviewed in the future.
4. Considerations in RPS System implementation in Japan, and issues to be reviewed
As for the Japanese RPS, Article 5 of the Additional Clause of the law specifies that “the national
government must consider the enforcement status of the law’s provisions after three years from when
it took effect, review the provisions if their review is recognized as necessary, and take necessary
measures based on the results of the review”; therefore, changes should be made as necessary. A
review of the issues related to the RPS implementation rules is probably among the primarily
necessary measures in this case. On the other hand, a review of the RPS’s details as a result ofchanges to or the performance of other policies and measures may be included. Moreover, making
changes to the details of existing policies and measures as a result of the introduction of the RPS,
and reviewing policy measures for items that will be affected by the system’s introduction are also
likely to be included in a broader sense. For this reason, while the system’s performance will become
obvious over time, its requirements at present should be clarified and reviewed continuously.
(1) Considerations in system implementation (Tables.2 and 3)*
1) Ensuring market liquidity for achieving targets with economic efficiency
The Japanese RPS offers three options for electric utilities to fulfill their obligations: (1) generate
power by renewable resources by themselves, (2) purchase new energies from others, and (3) haveanother utility take over their obligations. As for the takeover specified in (3) among these options,since electronic account openers are limited to new-energy generators and utilities, “trade” takes
place only by shifting accounts between utilities under obligation, unless a purchase is made directlyfrom a new-energy generator. To reduce social costs as a whole based on the market principle, while
market liquidity realized through the participation of a wide range of participants is generally
essential, it is still unclear whether the “takeover” system will evolve into a market trade system thatallows true linkage between customers in a reasonable manner.
Further, figure transfer is limited to “year ends,” making the trade period extremely short andtherefore not holding much promise for “market” liquidity. It is possible that futures and other formsof trade may be developed by brokers and others in the future. However, this may result in“takeover” trade-price surges (or vice versa), thus leaving considerable uncertainty as to whether
efficiency can be ensured through the market.
At first, concerning the fulfillment of obligations, it was unclear except the “takeover” system.
But as the implementation rule was formed in detail, it turned out that it is possible to purchasethrough the year the “Applicable Amount of New Energy Electricity” that has been recorded in theaccount to other generators and retailers.
2) Providing incentives to participants
To put more teeth into the RPS, the provision of proper incentives to participants in the system isessential. This includes not only granting target achievement incentives to parties under obligation,
but also granting to generators incentives for generating more than their obligatory quota. As for theformer, while regulatory methods such as fines and the public disclosure of generators’ names are

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IEEJ: September 2003

common in most cases, the provision of positive incentives to those fulfilling their obligations, as isdone in the U.K, is among the possible options. As for the latter, on the other hand, approving acarry-over to the next target period through banking may be possible. Banking, among others, islikely to be effective in consideration of renewable energies’ characteristics--lead time to construct a
generating facility, climate dependency, and others.
3) Establishing rules for interconnection measures, including how costs should be borne
While wind-power generation, for instance, tends to be distributed to a greater extent in regions
having favorable wind conditions, such as Hokkaido and Tohoku, such power supplies are prone tovarying output depending on wind conditions--one of their problems. As a result, if they areinterconnected to the transmission grid, extra costs arise for the existing grid side for the purposes ofstabilization and reinforcement, in order to suppress frequency variations.
According to the New Energy Division of the Advisory Committee for Natural Resources andEnergy’s report released in June 2001, such costs are expected to amount to 220 to 550 billion yen.
Rules should be quickly established not only concerning how these costs should be borne, but also
how the transmission network should be improved and maintained.
4) Reviewing the necessity of auto-generators’ participation in the system
The law exempts self-generators from their obligations, as they have less freedom of choice thanutilities, and because monitoring of self-consumption is not effective. However, in view of one of the
law’s objectives of “addressing global warming,” consistency with the law’s objective should besummed up in light of the fact that most auto-generators use fossil fuels as raw materials.
(2) Requirements concerning consistency with other policies and measures (see Fig.4)
1) The electric-power market
The electric-power market is expected to face expansion in its scope of liberalization, and anincrease in new entrants as a result of such expansion implemented in an attempt to achieve Japan’s
goal of enhancing its competitive edge. Under such circumstances, the Japanese RPS is a framework
leading to higher supply costs for many generators, as a result of which access opportunities for new
entrants may be reduced, eventually resulting in diminished effect of electricity tariff reductions as aresult of market expansion.
Let’s suppose, for instance, that new entrants will purchase all their RPS target amounts from themarket in the future. While the additional costs beyond the actual generation cost are low at roughly
0.15 yen/kWh (premised on the RPS portion’s upper limit of 11 yen/kWh and future RPS target of
1.35%), a demand/supply environment--an environment in which enough RPS portions are available
on the market for purchase--and market liquidity that allows trade are essential in maintaining the
aforementioned price level. In constructing an electric-power market in the future, therefore, RPS
introduction targets and implementation rules applicable to fair competition among electric utilities
should be reviewed in order to diminish negative impacts to the extent possible.
2) Addressing global warming
As for domestic global-warming policy measures, a final policy measures will be introduced in

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2005 or later in accordance with the “step-by-step” procedure specified in the Guidelines for
Measures to Prevent Global Warming. In reviewing final policies and measures, a system primarily
targeted at enabling Japan to achieve the Kyoto Protocol’s target with economic efficiency will likely
be reviewed. While the expansion of renewable energy introduction amounts contributes
volume-wise to the achievement of the Protocol’s objectives, proper introduction targets andimplementation rules should be reviewed through comparison with other global-warming
countermeasures (e.g., energy saving, utilization of the Kyoto Mechanism) in terms of
cost-effectiveness.
Let’s suppose, for example, that a system (e.g., an emissions trading or environment tax) widely
utilizing the Kyoto Mechanism and the market is adopted as the domestic system. If the RPS’s cap
on renewable energy supply costs exceeded the anticipated reduction-cost cap, it would be difficult
to say that an economically efficient global warming policy had been chosen. (Fig.5) Therefore, it isprobably important to change the RPS as appropriate in terms of how Japan should achieve the
Kyoto Protocol’s target with economic efficiency, while considering the details of a review ofdomestic global warming policy measures, on which more specific discussions will be held in the
future.
3) Creating a new budget for new energies
In the case of new energy policies traditionally carried out by the policy makers, primaryemphasis has been placed on financial support measures for the construction of facilities thatappropriate the government’s funds for the cost gap between new energies and conventional power
generation using fossil fuels and others. The RPS introduced under such circumstances is intended toturn the cost borne by the national government’s financial support into an internal cost throughgenerators’ target setting (including penalties) and target achievement by market trade. Therefore,
the diversion of financial support for other purposes, its stoppage, or other measures should be taken
if it is determined that any existing new –energy’s policy measure need no longer remain under thegovernment’s control through the RPS , and can be turned into an internal cost. On the other hand,
while the RPS is designed to allow generators to make electricity purchases at lower costs in orderto achieve the RPS targets, it adversely affects the introduction of photovoltaic power generation or
technically immature renewable energies. For this reason, technologies driven away from such a newmarket should be reassessed in terms of their future social usefulness, so that policy-oriented support
can be consolidated for the required technologies.
4) Approaches toward electricity users (generators’ voluntary efforts) and the RPS
The RPS System, by its nature, stops at the “supply side,” and approaches toward electricity users
are “diluted” by electricity tariffs, making the system unappealing. On the other hand, recent years
have seen the development of products focusing on renewable energies’ “environmental value” andother efforts by private operators--voluntary approaches toward consumers, including
green-power-certificate trading, green-power fund, and the establishment of green power businesses
by civic groups. These approaches toward consumers are likely to be very effective in view ofenergy and global warming policy measures. Taking the social impact of these systems into account,policies should be reviewed that will ensure that these activities are not restricted as a result of theintroduction of the RPS.

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IEEJ: September 2003

It will be important in the future to carefully and continuously examine the efficient functioning of
the system based on the aforementioned requirements, and to flexibly change introduction targets
and implementation rules as necessary.
Fig.1: Comparison of Power Generation by Renewable Energies by Country (2000)％

Million kWh

25,00016.7

Biogas16* IEA average
2.0%* U.S.
83,459 (2.1%)

20,00018

Biomass

14

Municipalities' solid waste *12

Wind power

15,00010
10,000
3.0
0.7

5,000

2.7

2.5

Tidal power, wave power

8

Solar (thermal)

6

Solar (photovoltaic)

4

Geothermal

2

Ratio (%: excludinghydropower)

1.3

3.0

1.8

0.9
0.7

U.
K.

ed
en

la
nd
s

Sw

Ja
pa
n

Ne
th
er

Ita
ly

G
er
m
an
y

A

Fr
an
ce

0

us
tra
lia
Be
lg
iu
m
De
nm
ar
k

0

Source: IEA, ENERGY BALANCES OF OECD COUNTRIES, 2002
Note*: Excluding industrial waste and municipalities' waste derived from fossil fuelsFig.2: Statistics on Japan’s Excess-Power Purchase Menus

3,500

Million kWh

3,000
2,500
Wind power

2,000

Photovoltaic
Self-generation
excess

1,500

Waste

1,000
500
0
1992

1993

1994

1995

1996

1997

1998

1999

2000

Source: Advisory Committee for Natural Resources and Energy, New Energy Division Documentation – Ministryof Economy, Trade, and Industry, September 2001
Note:

Year-on-year data. The auto-generation excess includes fuel-cell and industrial-waste power generation.

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Table.1: Classification of Support Measures for
New Energy Proliferation in Various Countries

Classification
Initial cost
supportSale/purchasesupportFinancialsupportSpecificmeasureSubsidy(investment
support)Description
Subsidizes part or all of the costrequired for the purchase or
installation of facilities

Examples invarious nations
U.K., Germany,
Netherlands, Italy,
Belgium, Sweden,
etc.

Financingincentive

Preferentially finances the cost of
the purchase or installation offacilities

Germany,
Denmark,
Netherlands, etc.

Tax breakGrants tax breaks (e.g.,
accelerated depreciation) for thecost required for the purchase or
installation of facilities, exempts
electricity users purchasing
renewable power fromenvironment, energy, and othertaxes, or grants tax reductions

Fixed-pricepurchase

Local electric utility purchases
electricity generated byrenewable energies at fixedpricesQuota +
certificate
trade (RPS)

Mandates that electricity
distributors, suppliers, and others
generate or purchase at least acertain amount of electricity
generated by renewable energies.
Often used together withcertificate trade.
Imposes taxes on fossil and otherfuels, and appropriates part of tax
revenues for renewable-energy
proliferation

Exemption,
reduction, andrefund ofenvironment,
carbon,investment andother taxes.
Widespread in
Europe and theU.S.
Germany,
Denmark,
Sweden, Spain,
U.S., Italy, France,
Netherlands, etc.
U.K., Sweden,
Italy, Netherlands,
Australia, somestates in the U.S.,
etc.

Levy onother fuels

8

U.K., Germany

Examples in Japan
Home-use photovoltaic power
generation by NEF (New Energy
Foundation), NEDO’s support for
new-energy power-generation
projects by local municipalities,
REPP’s and electric utilities’
support for the installation ofphotovoltaic power-generation
facilities
Low-interest-rate financing system
by policy rate using fiscal
investments and loans, preferential
interest-rate measures forphotovoltaic-generator-equipped
homes through ahome-builder/financial-institution
tie-up7% deduction (national tax) fromthe reference acquisition amount at
the time of new-energy facility
introduction, lot-tax easing
measure for local-energy-utilizing
facilities (local tax)

No purchase made to date as an
obligation“Special Law on the Use of New
Types of Energy by Electric Utility
Companies (Japanese RPS Law)”

Power-supply special account(power-supply diversificationaccount)
Oil special account (account forenergy demand-structureadvancement)

IEEJ: September 2003

Voluntaryefforts

Voluntaryandpreferential
purchase

Green fundGreen
Pricing

Green
power
certificate

Voluntary and preferential
purchase of new and renewableenergies by electricity
distributors, suppliers, andothers, regardless of whether
purchase is mandated
Contribution-based: Establishes
funds using contributions fromconsumers, ordinary citizens, andothers for the support ofrenewable-energy projects
Investment-based: Finances
promising projects at thepreferred rate from funds
established by investors.
Investors receive returns in theform of dividends.
Electricity suppliers makeavailable a wide variety ofmenus in accordance with newand renewable-energy
percentages and types, whilecustomers select favorite menus
and pay higher-than-normal
tariffs
Establishes a link between
customers wishing to purchasenew- and renewable-energy
electricity and electricity
generators, and regards
customers’ environment
premium payments asgreen-power purchases

Excess-power (e.g., photovoltaic,
wind, waste power generation)purchase by 10 utilities

Netherlands(investment-based)

Green-power funds (e.g., GIAC) in
10 regions across the nation(contribution-based)

U.S., Germany,
Netherlands, U.K.,
SwedenNo example in JapanRECS in Europe,
U.S.

Green-power certificate system byprivate businesses

Source: “Fumiki Akari: EU Committee Report on Treatment of Renewable Energies in the EU Power Electricity
Market” – Overseas Electric Power (4/1999)“Kimihito Ise and Fumiki Akisato: Renewable Energy Support Systems in EU Members (Volume I)” –Overseas Electric Power (5/1999), Advisory Committee for New Energy Division Documentation –Ministry of Economy, Trade and Industry (2001, 2001)“Toshihisa Fujii: Renewable Energy Utilization Promotion Measures in U.S.,” “Renewable Energy Policies
in State of Texas” – Overseas Electric Power (4/2002)
Hiroyuki Ishida: 15th Basic Energy Course “New Energies: Outline and Future Prospects” (9/2002)

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Fig.3: Outline of the Japanese RPS System
National government (manages electronic accounts)(1) Certify
facility(5) Record inelectronic
account

New-energy and otherelectricity generators(2) Mandate useof new-energy
electricity(7) Verify
fulfillment of
obligations• Electric utilities fulfill their
obligations by utilizing newenergy electricity (generated bythemselves or purchased fromothers).
• Electric utilities may haveanother utility take over part or
all of their obligatory quotas.

(4) Report newenergy electricity
amount(3) Sell electricity(note)

Electric utility A
Possible
takeover(6) Amountequivalent to newenergies(recover cost)

Electric utility B

Source: Documentation – Ministry of Economy, Trade and Industry

10(3)’ Sell electricity

End
consumers

IEEJ: September 2003
Table.2: Considerations in Implementation of the Japanese RPS System
Item

Economicallyefficientachievement oftargets

Presence/absenceof targetachievement
incentives for
systemparticipants

Requirement

Market liquidity

Banking, penalty rules,
and other functions

Interconnection
measures for the
expansion of
new-energy
introduction
amounts

Interconnection rules

Necessity ofself-generators'
participation

Feasibility ofself-generator
monitoring

Specific measure to meet requirement
specified at left
(example in Europe & the U.S.)
Participation of a wide spectrum of parties
concerned – not only renewable-energy
generators and suppliers but also traders andlarge-volume electricity users – in the market

Status quo Consideration

Consideration

Only new-energy generators and electric utilities
are allowed to open electronic accounts for direct
credit transactions (25 firms in 2003).

Sufficient number of participants to ensure
market liquidity?

Established certificate market (using theelectric-power market and financialtransaction market)

Governmental certificate market not establishedObligatory quota "takeover" system among
electric utilities

Reasonable link between participants?

Flexibly set certificate registration timing andtrade period“takeover” system and purchasing an“Applicable Amount of New Energy
Electricity” smoothly take place ?

Granted certificate banking to generators andparties under obligation

Quarterly certificate registration. Takeover isallowed only from year-end to June. (Purchasing
an “Applicable Amount of New Energy
Electricity” is possible whenever newenergy-based electricity has been recorded in theaccount to other generators and retailers.)
Banking and borrowing guaranteed under thesystemProper functioning of the system for bothgenerators and parties under obligation?

Penalties to parties not fulfilling their
obligations

1 million yen penalty if the obligation is not
fulfilled without "legitimate reason"

Sufficient to encourage parties underobligation to achieve their targets?

(Reference) German Renewable Energy
Law's load-leveling mechanism (cost borne
evenly by electricity distributors andsuppliers across the nation)

First 3-year obligatory quotas set to require no
special interconnection countermeasures, in orderto review how costs should be borne and how the
network should be operated

Under review−

Law not applicable to self-generators

Review of whether the law should beapplicable to self-generators'
self-consumption in terms ofglobal-warming policies

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Table.3: Features of RPS Systems in Various Countries
NationSwedenU.K.

Australia

Belgium*1

Netherlands

Italy

Year introduced

May 2003

April 2002

April 2001

Jan 2002

July 2001 –Jan 2002

Wind power, photovoltaic, geothermal,
wave power, tidal power, biomass,hydropower (existing hydropower ofless than 1.5 MW or hydropower thatstarted operation in July 2002 or later)

Reclaimed gas, sewage sludge,
small-scale hydropower, photovoltaic,
biomass, energy crops, tidal power, wave
power, geothermal, waste (only thosederived from non-fossil fuels),hydropower that started operation in1990 or later

Wind power, photovoltaic, biomass,
sewage sludge, reclaimed gas,hydropower, wave power, tidal power,
geothermal, energy crops, black liquor,
municipalities' solid waste (only thosederived from non-fossil fuels)

Photovoltaic, wind power, small-scalehydropower, wave power, tidal power,
geothermal, biomass, biogas, sewage
sludge, some waste

Wind power, small-scalehydropower (15 MW max.),
biomass power generation, biogas,
photovoltaic – including imported
electricity

Photovoltaic, wind power, geothermal,hydropower (regardless of scale, but not
pumped-storage power generation), tidal
power, wave power, biomass, waste derived
from non-fossil fuels, mixed-combustion
power generation

End consumers (not manufacturers)

Electricity suppliersElectricity wholesalers (nearly the sameas retailers)Electricity distributors
Electricity suppliersElectricity suppliers having no
obligatory quota

Electricity generators (including
self-generators)
Electricity importers

Additional 10 TWh of generation from2003 to 2010 (equivalent to an increase
from 7.4% to 16.9%)

2002 target: 3%
2010 target: 10.4%

1997 figure: 10.7%
2010 target: 12.7% (an additional 9.5
billion kWh)

2002: 1.4%
2010: 5.0%

2002: 2%
Expanded to 24.7 million kW from 2008 to2012 (equivalent to a 7% (kWh base) )In addition to renewable-energy
generators and electricity suppliers,transmission grid operators, traders, andlarge-volume electricity users can open
accounts. A tie-up with RECS (theEuropean voluntary certificate system)is also envisioned.

In addition to renewable-energy
generators and electricity suppliers,
traders can open accounts.
Allowed to sell ROCs to the emissions
trade market (but not vice-versa)

Can register certificates at any time
In addition to the establishment of thecertificate trade market (REM), thecertificate trade is thriving through thenationwide integrated electric-power
market (NEM).

Limited locally due to portioning
between the federal government andthree regions

1.5% currently
2010 target: 5%2020 target: 10%
In addition to electric power,
certificates are issued for otherenergy usages in consideration of
the effect of reductions in CO2emissions by conversion into theequivalent figure in electric power.
Certificates are also applicable toimported electric power.

Guaranteed minimum price from 2003
to 2008 (60 SEK/MWh in 2003 andsequentially reduced)

Maintenance of the system guaranteeduntil 2027

Preferential connection of renewableenergies to the transmission grid

Guaranteed minimum price bypower-supply type (terrestrial wind
power, small-scale hydropower: 5 euro
cents/kWh; biomass: 2 euro cents/kWh;photovoltaic: 15 euro cents/kWh)Electricity distributors mandated topurchase at the guaranteed
minimum priceTax breaks (e.g., electricity
consumption-tax exemption)
Penalty (150% of the average certificate
price or 175 SEK/kWh)Issuance of a climate-change levy (CCL)
exemption certificate
Buy-out recycling penalty (3pence/kWh)Penalty (40 Australian dollars/MWh),but carryover to the following year
allowed if the non-fulfillment is 10% or
less
Penalty reimbursed if the obligation is
fulfilled within 3 years

High-level penalty (10 euro cents/kWh)Tax breaks (e.g., carbon tax
exemption)
No penalty

Target power supply

Parties under obligation

Introduction target amount

Scheme for ensuringmarket liquidity

Incentives for generators

Incentives for parties
fulfilling their obligations

Source: Prepared by The Institute of Energy Economics, Japan based on the documentation from the respective countries
Note: *1: Flanders region

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Issuance of an 8-year certificate following thestart of facility operation guaranteed
As for domestic plants, certificates are issued toplanned plants based on estimated amounts ofpower generation for the year concerned andthe following year. Certificates are also
applicable to imported electric power.
Obligation of power generation
Guaranteed minimum price by transmission
grid operators
Investment support measures for comparatively
expensive power supplies and small-scale
power
Grid access priority for renewable energies
Penalty
Access limitation to the electric-power market
for parties not fulfilling their obligations

IEEJ: September 2003

Fig.4: Relationship between the RPS System and Other Policy Issues and Related Issues
Global-warming
countermeasure

Comprehensive evaluation
as energy/environmental
policyFinal decision in 2005 or laters

Consistency with policies and market
Target setting from an economic standpoint

Electric-power
marketExpansion of scopeof liberalization

No special provision

Private businesses’
efforts
Continued for the time being?
(Purchase system, fund)Independence from the RPS system
maintained (certificate trade)

RPS System
Impact on tariffs
Access by new
entrants
Role of reinforcing
gridElectric-power(energy) policies

Part of support cost turned
into internal cost
New-energy support
measuresNew-energy policy

Screening of support items
・ Future technology development
・ Proliferation, public education

Demand side

Supply side

Fig. 5: New-Energy Supply Cost and GHG's Reduction Cost
Reduction price ($/t-CO2)
800
700
600

[Reference (Report of the New Energy Group (2001))]
Home-use photovoltaic: 46 yen/kWh (top runner)
Large-scale wind power: 10-14 yen/kWh
Medium-/small-scale wind power: 18-24 yen/kWh
Large-scale waste: 9-11 yen/kWh
Medium-/small-scale waste: 11-12 yen/kWh

500

IPCC 3rd Report$400 (average for measures in Japan alone)

400
300
200
100

ERUPT, CERUPTApprox. $10-15

0
0

5

10

15

20

25

30

Unit Price for New-Energy Power Generation (yen/kWh)

Source: Prepared based on various documentation
Notes 1. A certain amount of latitude is allowed in new-energy supply costs, depending on the characteristics ofeach project, in consideration of whether the project is an alternative to thermal power generation(average CO2-emission unit of thermal/all power supplies). Exchange rate: 120 yen/dollar.
Notes 2. ERUPT (Emission Reduction Unit Procurement Tender), CERUPT (Certified Emission Reduction Unit
Procurement Tender): System used by the Netherlands government for the acquisition of GHG credits
through JI/CDM projects

Contact: ieej-info@tky.ieej.or.jp

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